How to Start a Manufacturing Business

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Starting a manufacturing business can be a daunting task. However, it’s not impossible. The key to how to start a manufacturing business is to begin small, research and plan thoroughly, network, and stay motivated. We’ve put together this guide to help your new company succeed, whether you’re wondering how to start a manufacturing business at home or you’ve already got enough funding to begin buying manufacturing equipment.

At a glance:

How to Know the Market and Your Place in It
How to Write a Business Plan
How to Start as Cheaply as Possible
How to Get Business Funding
The Benefits of Networking in Business
Keep Moving Forward

How to Know the Market and Your Place in It

It’s essential to know the market you’re planning on going into and where you’ll fit into it. There are pros and cons to supplying something new and innovative in a new market as well as to providing commonly used products that already exist in developed markets. The important thing is to make money, so follow whichever opportunities look promising- you don’t have to be passionate about a product to produce it. You can even just sell what your company uses to other companies; if your business needs it others will too.

The advantage of selling innovative new products is that they exist without a lot of competition, and the first person to hold a patent will be the person who owns the market on it. Newer products, however, require more promotion; they don’t have much demand because the people who could benefit from them don’t know they exist. If you’re starting a manufacturing company to produce a totally new invention, you’ll need to take steps to name, develop, and prototype the design as well as protecting it from intellectual theft. If that describes you, you can check out our in-depth guide on how inventors can set themselves up for success developing and protecting their ideas.

On the other hand, sometimes the best manufacturing business to start offers products or services that already exist, since there will already be a market for them. This way you can also learn from competitors’ mistakes. This also creates room to offer more innovative products later on; Thomas Edison’s first companies were a series of machine shops before creating his more famous inventions. There’s a big difference, too, between starting a manufacturing company that produces products and starting a job shop; job shops sell manufacturing services to other companies instead of making products for themselves.

Additionally, if you’re selling the same types of products as competitors, you’ll also need to figure out how to make them unique and better than similar products from other companies. Whatever your business produces, however, there will need to be enough people who will pay for it to make the production worthwhile.

When it comes to situating your product in the market, there are several areas to consider. Firstly, don’t try to compete with large companies as a small new business; it’s better to look for gaps that need filling. You can learn about the market starting with trade journals and exhibitions, but it’s also essential to get honest feedback outside of family, friends, and focus groups. See what your competitor’s customers complain about and try to solve those complaints. Make sure there’s a market for the product; this can be as simple as googling keywords to see if people are already searching for the product and how competitors are marketing it on their sites. From there you can source, have the product made, and put it out there using A/B testing to see if it sells to avoid investing in equipment that you may not use. If the product is successful, you can invest in the time and equipment to make it in-house.

Keep in mind the difference between push and pull marketing as well; pull marketing is your product showing up where people are already looking for it while push marketing is putting news of it out there, for example using ads.

How to Write a Business Plan

A good business plan will save you time later and potentially attract angel investors if you plan to seek out that kind of funding. However there are several factors to consider, including your legal requirements, where you’ll be selling, your day-to-day roles, and when you’ll start making money. It’s vital to ensure all legal details are correctly sorted out, including what certifications or licenses you may need, so you’ll want to check out local government websites and tap into the expertise of professionals who will know what you need. You should also figure out which places you’ll be selling your products, which can include directly through your website, at local stores, and through third parties like Amazon, eBay, Alibaba, or Thomasnet.com.

Think about what you specifically will be doing every day as well, including the roles you’ll play and how you’ll spend your time, whether in finding a market or making your products, and where you’ll be doing the manufacturing. It’s possible to start with just yourself in a home office or garage like the founders of Apple did. In fact, for their first order they assembled computers on the kitchen table with several family members acting as volunteers. As your business grows you can later hire freelancers, third parties, and eventually employees.

Remember too that the company won’t start making money right away to defray your upfront costs. Your product is likely to change as you continue to make adjustments. You may also try manufacturing products for a larger company to draw in more income initially, but it’s crucial to weigh the pros and cons of the partnership so you aren’t overburdening your company.

Here are some example industrial business plan templates and guides to get you started:

How to Start as Cheaply as Possible

Starting cheaply and running a lean company is the best way to avoid as much debt as possible. It’s also essential, however, to include room for your company to grow in the future. This can translate to renting space instead of buying it so you can scale up or down. This also applies to machinery, where it’s better to lease what you can and start with lower-investment equipment and manual labor. You’ll also want to look at ways to save money through efficiency, logistics costs, and marketing your company inexpensively rather than using large marketing campaigns. For products where you need to reduce risk, you may want to start outsourcing a product and move manufacturing in-house later when you have more money.

How to Get Business Funding

There will always be upfront costs when starting a company, however there are three basic ways to get funding: savings and alternative income, debt, and equity.

Savings and Alternate Income

The best way to start a business is through savings or other income that doesn’t come with strings, although this is not accessible to everyone, and those who use this type of funding may still need support from the other two methods. Apart from personal savings, you can also use an alternative income to help keep your company stable in early stages. This may be a stream of income from a side job, but it can also include money from selling other assets. Major companies have been started with funding from the sale of previous inventions or companies. Thomas Edison started many manufacturing companies over his life, including General Electric, but his first companies were funded by selling some of his invention patents. Likewise, Steve Jobs and Steve Wozniak started Apple after selling the rights to a calculator and a microbus they had invented.

Debt

Debt commonly takes the form of loans or credit cards. If you’re wondering how to start a manufacturing business with no money this should be your starting point. Straightforward debt is a less limiting way of funding your company than through investors; while investors take more risk and therefore require more of a stake, a lender already has collateral. Fast loans are best for situations when you expect the business to start making money soon. Using credit cards is also better for short-term solutions if possible. For either method, if you have the luxury of alternative income you can also try to match your debt payments to your income to minimize the impact.

Some incubation hubs also offer funding, so it may be worth checking into if there is one serving your area. Crowdfunding is also an option; it can take the form of rewards-based funding, which creates a minimal debt in the form of the rewards you send out once goals are met. The downside of this is that some platforms only release your funding if you hit the goal, resulting in promoting a campaign that gets you nowhere if it underperforms. Equity-based crowdfunding also exists, as we discuss below.

Equity

Using equity funding, under certain conditions, can be a boon for your business. Angel investors, which can include partner companies as well as individuals, can offer valuable advice and mentorship in exchange for a piece of your company. However, as mentioned above, investors require more of a stake because of the increased risk in their investment. This can be limiting as, depending on the stake, they may control parts of your operations and take a slice of profits later that you could be using to expand. Companies that haven’t produced much yet should avoid equity funding because it’s difficult to put a value on them.

The Benefits of Networking and Partnerships in Business

Although you are the one starting a company, you don’t have to figure everything out by yourself. It’s important to network with people with the same interests. This can happen through conferences, forums, and social networks. As you continue to talk to people you’ll get a reputation in the field and referrals, but you can also use these opportunities to talk to venture capitalists about your ideas and get feedback. It also helps to get to know people with skillsets you may not think you need just for background knowledge. You’ll also want to find advisors and mentors who have worked in the field, not just academics, who you can call on when you’re facing problems and whose advice you can trust enough to build your business plan with. As you continue to develop your company you’ll need to strengthen your skills in what you’re already good at and find interns, freelancers, or consultants who you can outsource your weaker areas to.

Other companies and organizations can also help you build yours. The most obvious companies will be the ones you’ll already have a business relationship with, such as vendors and those you outsource work to. Ensure you get to know your manufacturers well through phone calls, email, and visits, and check their references thoroughly. You should also have more than just one good vendor to call on. It’s less risky and promotes more competitive pricing to have multiple vendors.

Strategic partnerships with other companies can also benefit you by subcontracting different phases of production and outright outsourcing the manufacturing. This is also an excellent way to get larger manufacturers to take you more seriously since you don’t represent a large portion of their business. However, it’s important that the partnerships you propose also benefit them to give them an incentive to perform well. It’s also important to consider the benefits to your company. Make sure your company gets an equal gain in benefits, and there’s a plan for how to end the partnership if either party wants to end it.

Outside of private companies, you can also register at innovation hubs to gain access to mentorship, resources, and potentially money. Local chambers of commerce can also provide help, as well as organizations like SCORE, which mentors new companies.

Keep Moving Forward

Throughout all of your research, planning, networking, and budgeting, it’s important to stay motivated. Make sure that between your longer-term goals you complete easier projects and celebrate small wins too. You should also avoid getting bogged down in perfectionism; when the product is good enough you should move on instead of continuing to try to perfect it. All entrepreneurs start with ideas that either end up as dead ends or go in another direction, so that shouldn’t discourage you. Steve Jobs and Steve Wozniak started out building blue boxes, not personal computers.

In the meantime, once your manufacturing company is up and running, you’ll need strategies to help it continue to grow as you reach more customers. For continuous marketing tips on increasing your business, you can check out the Thomas blog or our library of eBooks and recorded webinars, including guides on marketing strategies, search engine optimization, and lead generation for general manufacturers, original equipment manufacturers, and custom manufacturers.